If you are in the real estate business and don’t own rental properties….smh.

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If you are in the real estate business and don’t own rental properties….smh.

I was chatting with a lady at a local association meeting who was nervous about her retirement coming quickly in less than 10 years.  She was, as many folks just like her, not prepared financially to put up her spurs and sip on a fruity beverage on a beach.  After lots of dialogue, it hit me like a ton of bricks.

This person owned zero real estate besides her home.  And she is a licensed REALTOR.

 

Why would a person in the industry not take advantage of the unique opportunity they have to increase their wealth?  It boiled down to ignorance and fear for her.

Literally sat there shaking my damn head….

So, the question on the table is this: Should you invest in rental properties for income when you retire?

My short answer is this: 90% of you in this audience probably fall into the damn ignorant stupid foolish category if you don’t.

Here’s why: You have a unique advantage to maximize the income and long term capital gain because of the very fact that you are in the industry already. You have first access to properties, you have first access to the deal flow, you have first access to trade partners like title companies, lenders, the best inspectors, the best vendors. And, if you’re an agent, you have huge cost savings by the fact you can earn commission on your own purchases and save commission on the eventual sale of the rental property.

To not take advantage of these is about as ignorant as you or your spouse NOT contributing to a company 401k plan where the company matches every dollar you contribute up to 3,4, or even 5%. IT’S FREE MONEY!!!!

Here’s what rentals mean for some folks:

1. Early Retirement. You HATE your job.
2. Worry Free source of income to supplement my social security and pension.
3. Passive Income. Play money so you don’t have to sell stocks, 401k and IRA money.
4. Mailbox money….All you have to do is walk to your mailbox once a month.
5. More time to dedicate to helping others because you have passive income. We have a client who owns a house in Fishers who is retired and ministering to prison inmates in upper New York.
6. Blue skies and beaches. Who DOESN’T visualize this???
7. Mortgage Free assets since your tenants pay off the mortgage for you each month. It gives you peace of mind.
8. Creating an annuity that continues to provide cash flows….even after you die, for my spouse, kids and grandkids. Estate planning.
9. Diversification because you don’t trust the stock market. Not all your eggs in one basket.
10. Predictable cash flows for the expensive care of an elderly parent. I started investing years ago myself, thinking it would be a way to supplement my kids 529 accounts. Little did I know that it would need to be used for my father’s care due to his rapidly advancing Parkinson’s…..such a nasty disease.
11. The Truly Rich of the word don’t save and retire after 20 years of working. They create a different lifestyle based on two currencies: time and mobility.

Is that clear enough for you?

Will Rogers said this: Don’t wait to buy Real Estate. Buy real estate and Wait.

Ok….so now that we have that out of the way, let’s talk about the number 1 reason intelligent people shy away from rental properties as an investment.

Who can guess what the #1 reason is?

The best way I can explain it is Fear of Loss is bigger in your mind than opportunity for gain.

So here’s how you combat this Fear to make rentals work for your retirement.

It involves Helga, Parcor, and Chuck. Helga, Parkour, and Chuck.

 

Let’s start with Helga.

Last summer, I had the pleasure of meeting a woman named Helga. Now Helga is a mean, vicious, ugly woman. You see, last summer I was walking along a beach on vacation and I heard a pop. Not only did I HEAR the pop, I felt the pop. I hurt something in my lower left leg around my calf muscle. After hobbling around for a few days, I made an appointment to see the doctor at Ortho Indy and he confirmed I had partially torn my calf muscle, but not fully torn it, so surgery wouldn’t be needed. As long as I religiously did the prescribed physical therapy, it would heal and keep the scar tissue to a minimum. So I meet with Helga weekly for 8 weeks.

She bends me, twists me, does all sorts of strange things to my feet and legs. And she makes me do a horrible exercise every day.

Are you ready? Here’s what she had me do: It’s simple. Stand on one foot on this pillow thingy.

The goal was to build up all the teeny tiny muscles in my foot, in my ankles, around the tibia and fibula, in the quads and hamstrings, and even the glute muscles. It forces them to rapidly fire to keep my balance. It forces the muscles and tendons to compensate for every tiny movement my body makes.

Now…..the goal is to increase how long I can stay standing.

So I get to do this on my own each day. In front of people at the gym. Looking like an idiot standing on one foot.

But, as I mentioned earlier, Helga is a mean, vicious woman. And she has a twist to the therapy exercise.

Now, I have to close my eyes.

It’s a lot harder with eyes closed!!

You see, without the visual cues of “I’m falling”, your brain can’t react to imbalances, thus your muscles have to work even harder to keep you balanced

So let’s bring this back to rental properties and your Life After Real Estate. Helga reminded me that the rehabilitation of my calf muscle is very similar to investing in rentals. Without sufficiently strong muscles and tendons around the calf muscle and up and down your entire leg, it will certainly tear again, causing more pain and a setback. It’s also a slow recovery process to heal and to build up these small rapid twitch muscles.

If you play in the rental business long enough, eventually something “tears” or breaks down. And often enough, it’s something you would never imagine would tear or break down. What matters most is not allowing the break down cripple you for the rest of your life. You can’t let the tear set you back to where you have to press the reset button on your retirement plans. And without the ability to absorb future tears or breakdowns with good systems, good people, and contingency plans, i.e. Strong surrounding muscles, you are most certainly going to have a really tough time in the rental business.

With rental properties, the number 1 reason landlords fail is lack of cash and unreasonable expectations for the rental property. Just like with traditional buying and selling brokerage, if you don’t know your numbers, you will fail. If you don’t have sufficient cash to absorb the unforeseen issues with tenants, economic recessions, even acts of God, you’ll be forced to press the restart button. You’ll come to hate your investments instead of loving what they can provide for your financial freedom. Furthermore, understand that this is not a get rich quick scheme. Like healing a torn calf muscle, it will take time. If you don’t consistently push yourself to learn more about the investment strategies or don’t push yourself to monitor where you are financially as compared to where you want to be, just like skipping the rehab exercises, you’ll end up in a bad spot. And surgery in rental properties is extremely expensive…..it can wreak financial havoc on everything else in your life. Trust me on this: I’ve had more unpleasant conversations than I want to remember with landlords when we on-board their properties for management services and we have to tell them the bad news: They are in a bad situation and there are no good solutions, only pain and less pain.

So here’s the take away from Helga:  Understand the business model before you invest in it. It’s a wonderful investment strategy for many folks. It’s a horrible strategy for some folks. If you don’t have the desire or financial ability to absorb the eventual “muscle tears”, then perhaps don’t invest in real estate.

Ok, now let’s do some jumping around, like we’re doing Parkour:

I don’t have the Top 10 Tips on making money in rentals. I have 9 for you today instead of 10:

Here they are in no particular order of importance:

1. If a tenant’s lips are moving and words are coming out of their mouths, they’re possibly lying. This holds true for everyone you encounter. Trust but verify.
2. The Law of Entropy will impact your real estate investing plan. This is the law that basically states everything in the universe is in a perpetual state of decay and breakdown. If you aren’t constantly maintaining your properties, your processes, and especially your knowledge, it will eventually all become a pile of rubble.
3. Two Cardinal Rules of real estate investing, which I shamelessly stole from Warren Buffett:

Number 1 Rule:  Never run out of Cash
Number 2 Rule:  See rule Number 1.

4. Risk and Return are two sides of the same coin. You can’t get out of this universal principle.
5. Numbers don’t lie. But they also don’t always tell the full truth.
6. Every landlord wants 2 things: Rent to be paid and their property to be taken care of. Everything else is gravy.
7. Don’t swing for the fences on your 1st rental property. Nobody hits a home run every time. Even 4 singles will get you a winning run.
8. When you sweep a room, you don’t start in the middle of the room. You sweep a room by focusing on the 4 corners. The middle takes care of itself as a result. In rentals, the four corners are leases, property maintenance, cash flows, and risk management.
9. Free education is abundant. It’s all over the Internet. It’s the desire to learn that’s scarce.

Ok….now let’s chat about Chuck.

Chuck is an interesting dude who made history with his talents. He’s one of my all time heros.

Chuck grew up in poor, illiterate Appalachia country. But Chuck has two advantages…he was born in the right time of the century and he had excellent eyesight. You see Chuck should never have survived to make it into the history books. In fact, Chuck should have had a street named after him at Edwards Air Force Base. You see, Chuck is a pilot. In his business, you get streets named for you when you buy the farm. I’m talking about Chuck Yeager, of course.

But the real story of Yeager’s success and place in history is that it shouldn’t have happened to him. Dozens of test pilots with college degrees and thousands of more hours of “stick time” than Yeager have streets in their names at Edwards. He only got a high school education and barely that. But he was drafted as a pilot during WWII and became a flying ace, downing five enemy aircraft in a single day. After the war, he became a test pilot. He took on the most dangerous experimental aircraft the engineers could dream up. Weird wing designs. Phenonomenally powerful jet engines.

He succeeded on most flights, pushing the envelope closer and closer to the sound barrier, that “wall in the sky” that everyone said couldn’t be broken. Some flights didn’t go so well. One flight in particular gave him burns over a large percentage of his body which required tremendous physical pain from which to recover. His grit kept him pushing on.

And so on October 14, 1947 in Glamorous Glennis, he blew a hole in that mythical wall and the rest is history. His achievement propelled NASA to the moon and beyond. If you’ve been to the Smithsonian Air & Space Museum in D.C., Glamorous Glennis is hanging from the ceiling above your heads still today.

So what was Chuck’s edge? What was his secret?

Chuck was a very slow pilot. Ironic, don’t you think, considering that he flew faster than any human before in history?

He knew his limitations as a professional pilot due to his lack of formal education could lead to disaster. He really didn’t understand the advanced mathematics in play to bend that curve of speed.

So, he compensated by partnering with a gifted engineer and together they poured over the technical manuals. They reviewed the safety protocols. They imagined the unimaginable things actually happening during test flights. They suggested changes to the aircraft design for hydraulics, flight controls, even dashboard gauge design. Before Chuck pushed the throttle forward on an aircraft for takeoff, he knew more about how the aircraft would actually fly than most of the college and PhD engineers who designed and built it. He actually would delay flights until he and his engineer were completely ready for the flight. It perturbed his commanding officers quite often, but it was his life on the line and millions of dollars in aircraft at risk, so they swallowed hard and kept their mouths shut.

Yeager’s dedication to going slow until he was ready to go fast saved his proverbial butt time after time because he was prepared.

I share this bit of history because it fits perfectly into running profitable rentals.

Every landlord and investor dreams of making huge piles of money from their rental units.

Every landlord and investor dreams of going 768 miles per hour. {Insert loud boom here.}

But…..Not every landlord and investor willingly puts in the hundreds of hours reading over legal documents, property management agreements, staying organized with their record keeping, learning the new statutes and local ordinances; doing the gritty work. Not every landlord and investor will role play the hundreds of “What if this happens?” scenarios with their trusted advisors. Then, when disaster ultimately does happen, they are unprepared to act quickly and correctly to save a relationship with their tenant, to protect the value of their asset, or to protect their legal exposure. They’ve “bought the farm”.

What is insane is that all of these crash & burns in rental properties can be avoided or at least the damages mitigated by remembering to do what Yeager did every time he flew an aircraft. Even if you are starting from a point with little “formal” education like Yeager, you can acquire it easily. It just takes time, determination, and grit. My goodness…..if you google the topic you’ll find 4 million hits. It’s kind of like googling how to lose weight. If you don’t have the discipline or time to learn everything you can about running rental properties, then find the professionals who can work with you to fill in your experience gaps, who can fill in your knowledge gaps. And who can keep you alive when disaster hits.

So here’s the takeaway from Chuck: The next time you find yourself wanting to speed up to break your next real estate barrier, slow down. You’ll not only live to rent out your units another day, but you’ll reach your the financial freedom faster, too.


 

Don’t let fear and ignorance dictate your Financial Freedom.  Embrace the lessons from Helga, Parcor, and Chuck.  In some cases, investments in real estate are literally changing the trajectory of a family for an entire generation in wonderful directions.

I see it play out many times and it is more addicting than caffeine or cocaine.

It is brutally fun to be a small part of the transformation and joy.

Until next time, here’s to your pursuit of Financial Freedom!

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